Tencent’s Lai: “We build new applications to cure the ‘pain points’ of users”

Jim Lai, head of Tencent Financial Technology Department, shares how the company became one of China’s top financial services providers and how a customer-centric internal culture resulted in effective and cost-efficient products.

Tencent monetised its platform by offering various financial products tied to its social messaging app

Out of 938 million WeChat users in China, 600 million are active users of WeChat Pay

Lai believes the company is capable of offering more services to its users to provide greater access to financial services

China, the world’s most populous nation, is home to the largest and most exclusive internet market. Unlike most other countries, China has walled off internet giants such as Facebook, YouTube and Google by cultivating its own internet economy with local players.

One of the country’s internet behemoths is Tencent, a leading internet provider founded in 1988, which also offers value-added services from social networking and payments to media, entertainment, and gaming. One of its most popular and influential products is WeChat, which has now over 938 million users in the country. More than a social and messaging platform, WeChat enables it users to book transportations, set doctor’s appointment, transfer money, send red packets, and conduct payments –integrating itself as a vital part of the consumers’ daily lives.

Jim Lai, head of Tencent Financial Technology Department

“Tencent is an organisation that has a laser-sharp focus on creating products which matters to the users. This culture has been the roots and driving force of our success,” said Jim Lai, head of Tencent Financial Technology Department. This internal culture conceived the transformation of payments in the country through WeChat Pay.

“It is aligned with our strategy of building the connectivity among users, providing services such as peer-to-peer payments and fund transfer. We have even grown our payment user base to about the same scale as the social network itself,” Lai elaborated. Currently, WeChat Pay has over 600 million monthly active users, even surpassing international counterpart PayPal who reported 197 million users as of 2016.

According to Lai, users have opted to bring their mobile phones with them rather than credits cards or cash – further pushing China to becoming close to a cashless society. “I think the reason for the success of payments services is because we focus on the user value, and try to make this service a utility,” he explained. During the first three years of offering payments, Tencent subsidised the cost and fees charged by banks and merchants to ensure a free service and in the process instilled this cashless lifestyle.

In addition, Tencent introduced innovative products such as the digital red packet, which started out as an internal gamified method to handout lucky envelopes to employees during the Lunar New Year. This product has become very popular at a global scale. “This year we had anticipated that the volume will be huge so we worked with every individual bank and worked on our technology to make the payment network resilient - one that can withstand every individual in China doing the same thing together,” Lai said. As a result, Tencent managed to support up to 250,000 payment transactions per second during the 2017 festivities.

Moreover, the company has strategically aligned with banks and merchants to foster a strong payment ecosystem in China. “It is a win-win situation for everyone. We bring a lot of new business to the banks. Before, banks’ cards were not actively used, but now they are being used almost every day. With increasing transaction volume, banks also increase their revenues from fee income,” Lai explained.

To support merchants, Tencent has also been developing its technology, providing a cloud-based platform which is scalable: “With WeChat, it's an open platform. So, basically, merchants can use open application programming interface to connect and offer V-chip pay to their end customers”.

With its expansive user-base and digital capabilities, it was not surprising that Tencent launched WeBank in 2015, the first online bank in China, to extend financial services to the underserved market. The company received a licence to operate from China’s banking regulator together with five other institutions including Alibaba. Although it struggled on its first year, reporting a net loss of $82 million (RMB584 million) from May to December 2015, WeBank recovered in 2016 with a net profit of $5.9 million (RMB40.1 million). This is mainly driven by microloans lent to blue-collar workers and small entrepreneurs in the country.

In line with this the bank continues to diversify its product portfolio by getting into other areas such as wealth management and remittances. “We think that we are able to offer more service to our users mainly for lowering the barriers to get access to financial services. We keep building new applications that can cure the pain points of users,” Lai said. Just recently, Tencent began testing a new function on the WeChat platform - Lingqiantong, a money-market fund.

Lai believes that at the end of the day, Tencent's primary focus remains on the user experience. The company has indeed successfully transformed its messaging platform into a payment giant. It would be interesting to see how far it can expand its capabilities to further establish its presence within China's financial services industry or even outside.